10-QPeriod: Q1 FY2006

BROWN & BROWN, INC. Quarterly Report for Q1 Ended Mar 31, 2006

Filed May 10, 2006For Securities:BRO

Summary

Brown & Brown, Inc. reported strong first-quarter 2006 results, with total revenues increasing by 13.9% to $230.6 million compared to the prior year's period. This growth was primarily driven by a significant increase in commissions and fees, up 12.7%, and a substantial 128.9% surge in investment income. Net income rose by 16.3% to $50.0 million, or $0.36 per diluted share, reflecting effective cost management despite increased expenses related to acquisitions and new accounting standards for stock-based compensation. The company's strategic acquisitions continue to be a key growth driver, contributing significantly to revenue expansion across its divisions, particularly in Brokerage and National Programs. Despite facing increased non-cash stock-based compensation expenses due to the adoption of SFAS 123R and higher amortization from recent acquisitions, Brown & Brown demonstrated solid operational performance. The company maintained its employee compensation and benefits as a percentage of revenue and saw improvements in its other operating expenses ratio, aided by higher contingent commissions. Management remains focused on integrating acquisitions and leveraging its diversified business model to drive future growth and profitability.

Key Highlights

  • 1Total revenues grew 13.9% to $230.6 million for the first quarter of 2006 compared to the same period in 2005.
  • 2Net income increased by 16.3% to $50.0 million, with diluted earnings per share of $0.36, up from $0.31 in the prior year.
  • 3Commissions and fees revenue increased by 12.7% to $227.9 million, driven by both acquisitions and net new business production.
  • 4Investment income saw a significant jump of 128.9%, reaching $2.2 million, attributed to higher yields.
  • 5The company completed three acquisitions for an aggregate purchase price of $72.1 million, continuing its growth strategy.
  • 6Non-cash stock-based compensation expense increased significantly due to the adoption of SFAS 123R, impacting net income by $1.4 million.
  • 7Amortization expense rose by 19.4% due to the amortization of intangible assets from recent acquisitions.

Frequently Asked Questions

Revenue growth was primarily driven by an increase in commissions and fees, which rose by 12.7% due to contributions from recent acquisitions and net new business production. Investment income also saw a substantial increase of 128.9%.

The adoption of SFAS 123R, requiring the expensing of stock-based compensation, resulted in an increase of approximately $1.4 million in non-cash stock-based compensation expense for the first quarter of 2006, reducing net income and earnings per share by $0.01.

Brown & Brown continues to actively pursue acquisitions as a key growth strategy. In the first quarter of 2006, they acquired three intermediaries for a total of $72.1 million. These acquisitions are focused on expanding core businesses and are contributing significantly to revenue growth across various segments, particularly Brokerage and National Programs.

The company is involved in several legal proceedings, including putative class action lawsuits concerning compensation and contingent commissions, shareholder demands, and governmental inquiries. While management believes the disposition of these matters will not have a material adverse effect on the consolidated financial position, they acknowledge that unfavorable resolutions could materially affect future results of operations or cash flows.